Ontario is proposing a new class of mutual funds. Investor advocates warn the risk may not be worth the reward
Ontario’s securities market regulator has faced pressure from Premier Doug Ford’s government to authorize a new class of mutual funds aimed at retail investors that can hold higher-risk private assets such as real estate.
The initiative is being touted as a way to give ordinary investors access to the burgeoning world of privately owned companies and assets, which are mostly only directly available to institutions and sophisticated, wealthy accredited investors.
But investor advocates say private asset investing is riskier and typically more expensive than traditional mutual funds – especially for small investors – and the advocates warn that the plan to create new private asset mutual funds could lead to investors’ money being locked up for years in long-term real estate or infrastructure projects that have extremely complex fee structures.
Doug Ford’s government is pushing regulators to authorize a new class of mutual funds aimed at retail investors that can hold higher-risk private assets such as real estate.Chris Young/The Canadian Press
Three people familiar with the process said the Ford government pushed the Ontario Securities Commission to launch the proposal as a way of raising money for big infrastructure projects. The OSC was urged to prepare a consultation paper unusually quickly, the people said, with the published result containing very little research or industry input.
The Globe and Mail has agreed not to identify the people as they are not authorized to discuss the matter publicly.
Scott Blodgett, a spokesperson for Ontario’s Ministry of Finance, said in an e-mail that while the government discusses capital‑formation initiatives with the OSC and receives updates, it “does not direct or expedite regulatory work.”
“Decisions about long‑term asset fund design, timing and investor safeguards rest solely with the OSC,” Mr. Blodgett said.
OSC spokesperson Julia Mackenzie said the commission’s proposal to launch retail private assets “dates back” to a 2021 report published by the Capital Markets Modernization Taskforce – another regulatory initiative by the Ford government.
At that time, the task force recommended the OSC write a formal proposal on retail private equity investment funds, and then seek public input. The task force said the funds could help close a “funding gap” for smaller companies. Three years later, in the fall of 2024, the OSC launched a consultation paper on retail investors’ access to long-term assets that mentioned the funds could also increase opportunities for additional funding for government infrastructure projects.
“The OSC believes it is important to be open to new and innovative financial products that can enable capital formation and provide new opportunities for investors, with appropriate oversight, disclosure and investor protections,” Ms. Mackenzie told The Globe in an e-mail.
Ontario’s Minister of Finance Peter Bethlenfalvy. A spokesperson for the Finance Ministry said the government receives updates and discusses capital‑formation initiatives with the OSC, but it “does not direct or expedite regulatory work.”Laura Proctor/The Canadian Press
Mutual funds currently invest in what are known as public assets, such as stocks and bonds, offering investors an easy way to own stakes in a diverse group of companies that trade on stock exchanges.
But investment industry officials are keen to create a new class of mutual funds that would take ownership stakes in privately owned assets, such as apartment buildings, ports, toll roads or bridges. Some private asset funds take ownership stakes in private companies, while others provide higher-risk private loans to companies through what’s known as private debt or private credit.
The OSC’s latest regime will open the door for mutual fund companies to apply for regulatory approval to launch private asset funds on a case-by-case basis. Individual asset managers will pitch their ideas to the OSC on how best to launch such funds for everyday investors and what the managers would require from regulators to do so.
But investor advocates and financial advisers are warning that private asset funds are typically highly “illiquid” – which means it can be difficult for investors to sell their holdings quickly.
They point to a series of problems that have emerged with existing private asset funds for accredited investors, saying the funds’ track record has been rocky, with some halting investors’ ability to withdraw their money for years while the funds try to work out problems with their holdings. And while an accredited investor is typically more financially sophisticated, with at least a $1-million in investable assets, the funds are still complex to understand and charge expensive fees that are not clearly communicated to investors in advance.
Public market investments offer more liquidity, which refers to a consistent flow of buyers and sellers, Kevin Burkett, a portfolio manager at Burkett Asset Management in Victoria, said in an interview.
“That is the missing feature in private investments, where even some of the most sophisticated investors commonly underestimate the importance of liquidity,” Mr. Burkett said.
The Portfolio Management Association of Canada, an industry group that represents fund managers who collectively oversee $3.6-trillion in assets, has historically supported the introduction of new investment products to the retail market. But the idea of investors being able to more easily access funds that are more complex, opaque and high-risk has the group on full alert.
“There is this fundamental tension between the desire to facilitate capital raising for infrastructure projects and the risk of selling this to ordinary people who potentially just cannot afford this level of risk,” said Victoria Paris, general counsel for PMAC.
Investor advocates question whether the OSC is responding to real investor demand or whether it’s being pushed to launch a new high-risk class of investments for the benefit of politicians and the wealthy developers who support them.
Jean-Paul Bureaud, executive director of the Canadian Foundation for Advancement of Investor Rights, or FAIR Canada, argues there’s an utter lack of demand from retail investors for private asset mutual funds.
“Most people don’t have enough money to invest in this, and if they’re working with an adviser, most advisers would probably say you shouldn’t be investing in this,” he said. “The economics just aren’t there. These funds would be really expensive.”
Yet the plan continues to move forward, with the OSC describing the project in a Nov. 20 notice as “a forward-looking initiative that will benefit both retail investors and the broader capital markets.”
Mutual funds are wildly popular investments and Canadians own more than $2.4-trillion of them.
Crucially, individual investors can easily sell their portion of the fund at any time and are given the price of their funds – known as the net asset value – on a daily basis.
Most funds typically require a low threshold to invest – anywhere from $500 to $5,000 to start – and they can be purchased through a financial adviser or independently through an online trading platform. Disclosure documents legally have to be sent to an investor upon the purchase of a mutual fund, which outline the fund’s investment objective, top holdings and investment fees.
Currently, mutual funds cannot invest more than 10 per cent of their assets in investments that aren’t easily converted into cash – known as illiquid assets – and the funds are prohibited from purchasing certain types of private assets, including real estate and non-guaranteed mortgages.
In contrast, private market funds are less constrained in what they can hold, and currently are not as easy to access. They usually require a higher minimum amount to invest – such as $25,000 or more – and the funds are more commonly held by wealthier investors and institutions such as pension funds, which can hold investments for longer.
Private asset fund managers do not always publicly disclose full investment holdings or regularly update the value of their holdings. The fee structures can be complex, with performance fees that could drive the overall price tag higher than traditional mutual funds.
Investors in private asset funds can’t easily sell their holdings because the fund’s assets – such as apartment buildings, shopping malls or private loans – cannot themselves be easily sold to repay investors. That means investors looking to cash out often have to wait for preset redemption periods. If too many investors ask to cash out at once, the manager can halt all requests until further notice.
The pitch made by private fund managers, which the OSC touts as one of its key motivations for opening the market to retail investors, is the potential to earn far larger returns. It’s often referred to as an illiquidity premium, meaning investors are offered higher returns to offset the constraints on their ability to sell easily.
However, the evidence that private investment funds generate such premium returns is scant.
The Globe analyzed the returns from a dozen private funds with publicly available data on their investment returns that have been operating for at least five years. Most of them have generated average annual returns of between 4 and 9 per cent, with only one reaching the low double digits.
For comparison, the S&P/TSX Composite Index has averaged nearly 8-per-cent annual returns over the past 50 years. Over the past five years, that index has posted a nearly 13-per-cent average annual return.
Then there’s the sheer complexity of private funds, which is one reason even some high-net-worth investors are surprised when they are unable to cash out when they want. Fund managers can halt redemptions at any time if the number of investors requesting to leave exceeds a certain level.
As real estate markets began to deteriorate further throughout 2025 – with higher borrowing costs and falling apartment rents, those halts (also known as “gating”) began occurring with increasing frequency.
Last August, Trez Capital Mortgage Investment Corp., one of Canada’s largest private commercial mortgage providers, halted redemptions from five of its funds.
In September, Nicola Wealth Management Ltd., a $17.2-billion money manager, reduced monthly distributions on its two main real estate funds. That same month, private real estate fund Centurion Apartment REIT told its investors that it was putting limits on redemptions.
Both cited widespread investor fears about private investments having greatly increased requests for redemptions.
Most recently, in mid-January, Toronto-based private lender Courtland Credit Group Inc. halted redemptions on its flagship fund, citing trouble with a single borrower that comprised a large portion of its loan portfolio.
Those halts can remain in place for years, as investors in private mortgage lender Romspen can attest.
In late 2022, Romspen froze all investor redemptions and that freeze remains in effect to this day . In the years since, Romspen has cut its monthly distribution multiple times, meaning its investors now earn much lower-yielding payouts while their money remains trapped.
The OSC argues its initiative will give retail investors access to a new asset class while also helping private companies raise capital, and the initiative will include stricter regulation than what currently exists for funds aimed at accredited investors.
In its October, 2024, consultation paper, the OSC also said the Ontario government “is looking at innovative ways to finance transportation, housing, energy, and municipal services, including through the ‘crowding in’ of private sector investment.”
The OSC proposal, the document said, “is aligned with this goal as it contemplates an ecosystem that could include financing these projects through investment fund product structures.”
The Finance Ministry’s Mr. Blodgett said that, as an independent regulator, the OSC “leads all policy development and consultations on long‑term asset funds.”
But the sources say the OSC proposal was written hastily with very little academic research or evidence of the advertised “higher” private market returns.
Investor advocate Ken Kivenko says he has not heard a single investor ask for illiquid long-term private asset funds.Kate Dockeray/The Globe and Mail
FAIR Canada’s Mr. Bureaud says the rationale shouldn’t be whether the government needs money for projects, but whether these are good investments that investors want to include in their portfolios.
“This doesn’t seem to be driven by market demand, by investors,” Mr. Bureaud said.
Investor advocate Ken Kivenko said in all his discussions with retail clients, he has not heard a single investor ask for illiquid long-term private asset funds.
Harold Gellar, a lawyer at MBC Law Professional Corp. in Ottawa, whose firm handles negligence and fraud cases for harmed investors, says regulators should consider whether retail investors are being offered investment opportunities that sophisticated investors have already turned down, leaving private market fund managers desperate for fresh sources of capital.
“Is this shifting of risk from sophisticated commercial investors to unsophisticated individual Ontarians appropriate?” he said.
Private funds have nonetheless proliferated rapidly. According to the OSC’s annual investment fund survey, the number of private asset investment funds available in Ontario has nearly doubled over the past five years, from 184 in 2020 to 354 by the end of 2024.
As institutional investors reach their limit on how much they want to invest in private markets, the surge in competition has led asset managers to view retail investors as a fresh source of revenue.
Over the last decade, some of Canada’s largest fund managers have partnered with alternative investment money managers in hopes of launching new retail funds.
Toronto-Dominion Bank scooped up the country’s largest institutional asset manager, Greystone Managed Investments Inc., in 2016 and Mackenzie Investments acquired a stake in Northleaf Capital Partners in 2020.
In 2016, TD acquired Greystone Managed Investments Inc., Canada’s largest institutional asset manager.Spencer Colby/The Canadian Press
More recently, Bank of Nova Scotia announced it launched a series of private asset funds for accredited retail investors in partnership with Sun Life Financial Inc.’s asset management division, SLC.
Concerns over relative risk aside, proponents argue greater access to private funds is critical to diversification strategies amid a declining number of public market investment opportunities. For decades, the number of publicly listed operating companies in Canada has steadily declined as businesses increasingly opt to remain private for longer, often forever.
“The number of privately held companies is growing, the number of publicly held is shrinking,” said Nadim Vasanji, managing director of Northleaf, a private equity firm that recently partnered with Mackenzie to launch what is currently Canada’s only retail fund that invests in private companies.
“When you think about portfolio construction in the context of increasingly concentrated public markets, figuring out the right, prudent, appropriate way for individual investors to gain access to private assets is an imperative,” Mr. Vasanji said.
During a Dec. 10 webinar on long-term assets, Raymond Chan, the OSC’s senior vice-president of investment management, said given the growing importance of private markets, it makes sense for the OSC to consider ways to position Ontario and Canada to stay competitive in the private and public markets.
“When this new category takes hold, we are confident that it will support the continued build-out of local ecosystem in Ontario and in Canada for the benefit of businesses and investors,” he said.
However, Rachel Wasserman, a corporate lawyer and founder of Wasserman Business Law and a fellow with Social Capital and the Canadian Anti-Monopoly Project, says rather than opening up private investments to retail investors, OSC resources would be better spent fixing the declining state of public markets. For the past several years, she has studied the impact the private market is having on the economy, including the public markets in Canada, which have been losing about 60 companies a year. And once companies go private, she says, they almost never return.
“Our public markets are more accessible, democratic and liquid, and thus more beneficial to retail investors,” Ms. Wasserman said. “Capital will return to the public market if regulators can find a better balance between necessary public disclosure and excessive regulatory burdens.”
Rachel Wasserman, a corporate lawyer and founder of Wasserman Business Law, has studied the impact the private market is having on the economy, including the public markets in Canada.Kate Dockeray/The Globe and Mail
When the OSC first launched its public consultation in October, 2024, it proposed a framework for a new type of mutual fund that could invest in private assets.
The heart of the initial proposal was to remove the 10-per-cent limit for mutual funds on investments in private assets, and require a “cornerstone investor” – such as a pension fund or large institution – to hold at least 10 per cent of the fund’s equity to ensure there was a large, stable investor that wouldn’t quickly seek to cash out.
One of the most controversial parts of the OSC’s initial proposal would have required portfolio managers to shut down a private assets fund entirely and liquidate its holdings if the number of investor requests to take out money exceeded more than 10 per cent of the fund for two years in a row.
The OSC was trying to address several key problems with existing private market funds, and to provide retail investors with a product that would have daily reporting, more disclosure and the ability for investors to redeem their money more easily.
The proposal faced significant pushback from mutual fund companies themselves. They complained the proposed structure was unnecessarily complex and expensive, and it would create new layers of regulatory burden.
There was an additional concern that the new rules would take too long to launch under the OSC’s typical process, which can take years of consultation after publishing a rule for comment. In its comment letter dated Feb. 21, 2025, the Securities and Investment Management Association (SIMA), formerly known as the Investment Funds Institute of Canada, said making amendments to existing regulatory rules would take “several years” to finalize.
Faced with pushback from the industry on the structure, as well as concerns about the anticipated slow pace, the OSC unveiled a new and more ad hoc approach to the project several months later, on May 29.
Rather than create a full set of new rules to govern the sale of private asset mutual funds, the OSC said it will review applications for new private asset funds on a case by case basis, with companies creating their own proposed design and rules for each fund they want approved.
If the OSC likes the pitch and the structure, a fund company will be given an exemption that allows retail investors access to private markets directly.
Industry experts say they support the OSC’s new approach, as it provides more flexibility in developing new products, but warn success will depend on whether investors actually buy the funds. As well, fund companies want assurance there will be an abundance of quality commercial projects and loans to invest in – so they aren’t all pooling into the same opportunities.
“In order for us to have success, we have to have a very large capital pool in order to compete on the size of those private assets,” Fidelity Investments vice-president of products, Andrew Clee, said during the Dec. 10 webinar.
One way to draw in a larger pool of investors would be to offer a federal tax incentive, said Andy Mitchell, chief executive officer of SIMA, which represents about 150 fund managers.
“There needs to be some innovation around tax benefits and tax incentives for these type of solutions to attract more attention from advisers and investors,“ Mr. Mitchell said in an interview.
“Obviously this is building long-term infrastructure projects in various methodologies for Canada, not just Ontario, so you could see some very interesting tax incentives that could be applied to these programs.”
Changing tax structure would require including the federal government in the planning process – a step that SIMA has not yet taken.
Anthony Quinn, CEO of the Canadian Association of Retired Persons, said the OSC’s current proposal to provide access to pension-style investing could be an opportunity for investors, including older adults.
However, he is concerned that many financial institutions would only bring these products to market if there were significant fee opportunities for them – which means higher costs for investors.
“Our concern is that the investor may carry most of the risk while the institution captures much of the reward,” Mr. Quinn said in an interview.
Even with the new ad hoc regime, there is still much work to be done before a product launch is possible. It is not easy to market such a complex product, particularly when it comes to educating investors and financial advisers of the risks involved.
Part of the steep learning curve is due to the lack of private market training for the more than 80,000 mutual fund advisers who would be expected to sell such products. Currently, private asset investing is not part of the standard licensing exam or the continuing education credits mutual fund advisers are required to complete.
It’s similar to a problem advisers faced about a decade ago with the rise of exchange-traded funds. Legally, investment advisers are required to know the product they sell to clients. And while mutual fund advisers were legally allowed to sell ETFs, the mutual fund training course and examinations did not include information about ETFs until 2017.
“We would be uncomfortable supporting mutual fund licensed salespersons given a mandate to advise on these risky, complex illiquid funds in a portfolio,” Mr. Kivenko said.
Nadim Vasanji, managing director of private equity firm Northleaf Capital Partners. Northleaf recently partnered with Mackenzie to launch what is currently Canada’s only retail fund that invests in private companies.Fred Lum/The Globe and Mail
Mackenzie Investments knows the amount of work involved to launch such a fund. Currently in Canada, it is the only investment company with an exemption from the OSC for selling a private market fund for retail investors. Nearly two years ago, the Mackenzie Northleaf private credit interval fund was launched, a type of fund that allows retail investors to redeem up to 5 per cent of their money on a quarterly basis.
But the fund required an immense amount of work around investor and adviser education. Northleaf’s Mr. Visanji said he would welcome more competition in the retail space as it would also help drive the adoption curve of alternative assets.
“When you’re first, you’re doing the hard yards on the education,” he said in an interview with The Globe.
Currently, private assets account for less than 1 per cent in an average Canadian investor’s portfolio, according to Northleaf. In the United States, that number jumps to about 4 or 5 per cent. Mr. Visanji says he expects it to eventually climb to about 10 or 15 per cent.
Despite the hurdles, funds have started moving on the new opportunities. On Nov. 20, the OSC said that, since May, it had been contacted by more than 20 interested parties, including investment fund managers, portfolio managers and industry associations.
During those discussions, the OSC said several ideas emerged on how to structure private asset funds for retail investors.
They include allowing unsophisticated retail investors to hold existing private funds that are “qualified investments” under registered plans, increasing the current 10-per-cent cap of private assets in traditional mutual funds and adapting a fund structure that is being used by Mackenzie Northleaf. The OSC also said that it is still open to revisiting its original proposal on private assets.
“We do suspect that good practices and structure will emerge over time,” Mr. Chan said.
Despite the rush of the OSC’s consultations, SIMA’s Mr. Mitchell said he does not anticipate a flurry of retail funds hitting the market any time soon.
Rather, he says, SIMA is planning to set up a task force that will spend most of 2026 discussing logistics around product development.
“There needs to be clearer guidance for asset managers of what is in the realm of possibility versus what is not possible,” Mr. Mitchell said.
“I don’t think a lot of fund manufacturers today want to spend the time, money and effort on launching something that doesn’t gather assets and obviously earn them some revenue as well.”
Ms. Wasserman says rather than opening up private investments to retail investors, OSC resources would be better spent fixing the declining state of public markets.Kate Dockeray/The Globe and Mail
Whatever structure the OSC approves for private asset mutual funds, investor advocates fear the funds will still carry excessive risk for ordinary investors. The recent halts in redemptions at private asset funds have hit institutional and wealthy individual investors, and have brought a heightened awareness to the types of guardrails these types of funds would need in order to open the floodgates to everyone.
“In an industry already tangled in layers of conflicts, misleading information spreads easily and creates an unfair, inefficient playing field – precisely what the OSC is mandated to prevent,” Ms. Wasserman said. “The only fix is full transparency, fair rules, better education and simpler structures.”